Innovation On The Rocks

Sail for the horizon. But avoid the rocks.

Innovation is hard for big, successful organizations. It fails too often – and not just project failures – that’s to be expected when you take risks. The big problem is when capital i Innovation – innovation as growth strategy – runs aground. Time and again we’ve seen well-intended leaders paint grand ambitions with equally bold claims. We’ve cheered them on as initiatives show solid progress. And just as they’re gaining momentum, innovation suddenly stalls. Or finds itself hung up on a shoal, or worse, dashed against the rocks. In the worst cases the whole program sinks under its own weight. Why?

Why do we keep running up on the rocks?

When you’re in the business of innovation, systemic, repeated failure across numerous examples weighs heavily. A few of my equally troubled colleagues – professional advisors or practitioners of design-driven innovation – have undertaken an analysis of this phenomenon.

Our investigation would not impress you as particularly scientific. We share anecdotes, question each other (sometimes at a whiteboard, sometimes through the bottom of a pint glass), dive deep for context, deconstruct problems, and try to pick apart the symptoms. It helps that our work often overlaps; several of us serve the same case companies in question. So we can challenge assumptions through a rough approximation of peer review.  It doesn’t take long to find hints at the underlying cause.

The Most Insidious Threat

We found nagging problems in all of these areas: strategic focus, market boundaries, customer needs, technologies, timing, risk tolerance, and invested capital. In several cases they presented big impediments to innovation – derailing a project, delaying approvals, abandoning a pilot prematurely. Serious issues. But no fatal flaws. Nothing that undermined the Chief Innovation Officer (CIO) or the overall mission for innovation.

Yet still we saw CIOs up-ended. Fired. Their roles and even the entire function eliminated. We have stood shoulder-to-shoulder with dejected design teams as CEOs backtrack on their commitment to innovate. It’s heartbreaking stuff.

We concluded that the single most critical barrier to design-driven growth – to sustainable innovation – turns out to also be the most insidious. In some cases it’s such a natural state of affairs that it goes unrecognized.

Some call it culture clash. Others apply clever labels like “risk inversion” (ie risk tolerance for innovation over the risk aversion of the status quo). It’s a conflict as old as biology.

Whatever label you apply, it sits at the heart of Clayton Christensen’s “Innovator’s Dilemma“. New threatens old. Inertia overwhelms. Fear of failure drowns entrepreneurial will. If you happen to be that bold captain at the helm, this means you can’t just watch the horizon, or your charts. You also have to watch your back. The threat may appear as withdrawn patronage from above, or occasionally as a mutiny from within your own crew.

The catastrophe will get bigger before it gets better

Big companies turn to innovation when they strive for new sources of growth. Visionary leaders or desperate times produce similar passions. Or maybe the company just changed course; often they’ve also changed CEOs.

You’ve heard and probably experienced the origin stories of the innovation shift at iconic companies like P&G, GE, IBM and 3M. From Post-Its to Swiffers, Watson to Ecomagination – their examples launched a thousand ships. Now even mid-size companies aspire to innovate like the big boys – to build design into their fiber as a core competence.

The primary growth strategy for stagnant businesses historically relied on M&A – inorganic growth by acquisition. It looks easy. If you’re not growing, look around and see who is. Buy them. Repeat.

M&A starts easy but ends hard. The ugly truth prods analysts and board members awake at night. It’s not cheap to pay a proxy to innovate for you. Entrepreneurs demand a steep premium to bear the risk that you would not. And yet it still proves surprisingly risky, given the long, sad history of capital destruction from failed acquisitions and integration.

As the science of innovation has evolved from art and alchemy into measurable, repeatable process, large companies have increasingly added this new formula for organic growth to their arsenal. Like monarchs of old Europe, CEOs of today’s large companies sponsor their own intrepid explorers. In place of the sextant and compass, innovation executives employ user-centered, design-led methods to discover new sources of growth. We find it most prominent at professionally-managed global enterprises, mature and growth-challenged, often conglomerates grown by acquisition, operating in complex and competitive markets.

Mind the Generation Gap

The first and most salient insight of our study came from comparing the right companies at the wrong times.

You must separate long-established companies from relative “start-ups”. We get confused by huge successful companies like Apple, Google and Amazon. These “first generation innovators”, led by their founders or founding generation, belong to a different category. Unlike long-established companies, they operate like all start-ups, visionary, aggressive, single-minded, risk-tolerant, revenue-patient.

How would you compare GE to Amazon (or, ironically, Tesla’s Tesla to Musk’s Tesla)? To find parallel lessons, you have to bridge generations. A proper comparison traces their original growth cycles, founder to founder.

To compare GE to Amazon, you must compare the eras of Edison to Bezos. Forget the famous photos of the sage old wizard of Menlo Park. Consider the vital young Thomas Edison, toiling in his lab, 10,000 failures deep into his search for a working filament. It was over 30 years later and into the next century before his breakthroughs began to illuminate the world at the helm of his General Electric. There are direct parallels with the indomitable Jeff Bezos, defying investors and analysts and prognosticators at every turn, ultimately to deliver your whims to your doorstep with a click.

Both represent founder-led startups. Both introduced disruptive business models and offerings to produce unbridled growth and eventual market leadership. As founders with a vision, their very natures and actions were user-centered and design-led.

Only after second generation management professionalizes the systems do these companies become institutional bastions for continuous improvement.

Draw a line between the founder led generation of start-ups and the professionally managed succeeding generations. I will address this phenomenon soon, in a thesis to help large organizations to recover the genius and daring of the entrepreneur; to “Start Up Again.” For now please just take the insight; recognize the shared attributes of entrepreneurs and designers. These boil down to “user-centered, and design-led”. These traits – common to first generation entrepreneurs – are uncommon and often incompatible to the historic priorities and cultures of established companies.

Bridge the generation gap by looking outside and inside, far and near.

Entrepreneurs find a need and pursue it doggedly. Designers do the same. They look outside, not inside. (The best of the various breeds of innovation executive are trained practitioners in the methods of design. They “reverse engineer from the future”, using the method familiar to architects and industrial engineers.)

For an established organization, inside is about doing what you’ve always done. Outside is where the action is – where customers get angry and competitors get busy. The trick is to do both; look around while you look ahead.

To stay off the rocks, leaders of new growth in old companies can’t just seek empathy for their customers. They need empathy for their corporate sponsors, their fellow executives, and the crews who make it happen.

Five principles to avoid the rocks

I encourage Innovation leaders to consider these principles, but only if they operate in a politically-charged organization (ie every gathering of three or more people).

First: recognize the problem.

You. You are the problem. You live in the future. Your company makes money in the present. To quote Michael Croton, a prolific advisor on this subject:

“Your innovation agenda is entirely antagonistic to your fellow executives. There’s no point arguing for the long-term common good if today’s leaders have to deliver today’s revenue. It’s anathema to their mission”.

It also very likely conflicts with their internal programming. It is hard to change DNA. Don’t fight nature. Nature wins.

Second: find a powerful partner.

Cash is king. Profit is power. Start with whomever owns a P&L. Or, as the head of Enterprise Growth at an revered financial institution told me just this morning – own the P&L yourself. Until you do, find the executive who is hungry for growth; someone whose career you can help, and who has the patience for the pay-off.

Play Columbus to your executive sponsor’s Queen Isabella – share a vision for your conquest, and play to her ego (see Economist|Schumpeter on the Network Effect at Davos). Contribute funds. Let ’em see you sweat. Do some great work together. And remember to come back with the gold.

Third, do something small.

Find a way to win-over the operators. Define a project that helps the COO in the relatively short term (2 quarters to 2 years), for example. Keep it simple. And don’t rattle on about innovation. Your job is either the top line or the bottom. Design, ethnography, innovation, yada yada – it’s all nonsensical backstory – the means to an end. Talk about growth. Use familiar symbols – like this one: $$$. Show ’em the money.

You may find it best, especially if you don’t have explicit board sponsorship, to look beyond the head office. A division or a geography can provide better leverage and coverage at the same time.

Which brings you to number four: get the money.

Secure innovation funding from the CEO to do longer term stuff, as well as interim projects. Make sure you have a dedicated fund – it should be seen as your money not hers. Set aside a discretionary budget for your projects. Not a slush fund, not a petty cash pool. Simply a distinction between the big, long-view pipeline, and the small, discrete, short-term projects.

Find your operating partner; maybe it’s a business unit president, or the SVP for a distinct market. Together, mark out a joint project. Share the resources and share the costs. If your partners won’t ante up, they’re not bought in. If you won’t, they will eventually realize they don’t need you. Expect they will toss you overboard at the first sign of a storm.

Fifth, show progress.

Give yourself time, but set demanding milestones to demonstrate your steps along the way to the first goals.

Get clever about how you show progress. Early wins in innovation are often intangible. Tease the tangible out of lead indicators. Translate their value.

More than one prominent innovation executive has shrewdly set up shop beyond the veil of headquarters. Ford announced their plan this week to set up a new R&D lab in the heart of Silicon Valley. Other CIOs have relocated to Boston’s med tech corridor, New York’s Silicon Alley, Tel Aviv’s startup haven, and incubators across town.

The key is to set yourself visually and viscerally apart from HQ. Visiting dignitaries draw kinetic energy from bouncing off your smart, vigorous staff. Entrepreneurs work and play at higher velocity. Slow moving functionaries find it infectious. VCs rub shoulders with the digerati and design cogniscenti. Dazzled by bright bulbs and shiny new toys, executives sprint back to the ivory tower, breathless with the potential.

Other methods include publicizing small pilot projects and quick wins, trumpeting noteworthy partnerships, sharing digital dashboards. It doesn’t need to be flashy (though a TED talk helps). Even a highly visible wall-size project board may suffice.

If you’re good you win advocates. If you’re lucky you claw back a few quarters to extend your timeline for delivering results.

Lastly, draw a map.

I offer this last principle reluctantly, because it could be seen as self-serving. It holds true nonetheless.

When you’re sailing for unfamiliar horizons, bring along an experienced navigator.

Hire them. Rent them. But bring them along. Talented, experienced innovators know how to spot and dodge the rocks. Their insights help you build a more resilient organization. They make your journey a bit more navigable.

Make Better.